Occasionally it is convenient to use preprocessor directives within the arguments of a macro. The C and C++ standards declare that behavior in these cases is undefined.
Versions of CPP prior to 3.2 would reject such constructs with an error message. This was the only syntactic difference between normal functions and function-like macros, so it seemed attractive to remove this limitation, and people would often be surprised that they could not use macros in this way. Moreover, sometimes people would use conditional compilation in the argument list to a normal library function like `printf', only to find that after a library upgrade `printf' had changed to be a function-like macro, and their code would no longer compile. So from version 3.2 we changed CPP to successfully process arbitrary directives within macro arguments in exactly the same way as it would have processed the directive were the function-like macro invocation not present.
If, within a macro invocation, that macro is redefined, then the new definition takes effect in time for argument pre-expansion, but the original definition is still used for argument replacement. Here is a pathological example:
#define f(x) x x f (1 #undef f #define f 2 f)
which expands to
1 2 1 2
with the semantics described above.